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Causes of the Great Depression

May 14, 2008

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RUSH: Folks, it's time for a little history lesson. Now, we're going to get to the phones here in just a second. Please be patient. But I want to do a little history lesson, because also, while in Cape Girardeau, Missouri, yesterday, Barack Obama said this: "I don't think that we're necessarily going in the direction of the Depression," in response to a question during a visit to a suit-making factory. He said, "There are some similarities, though, to the Great Depression, to what happened back in the late twenties and the early thirties and what's been happening now, and the biggest similarity is how we've been dealing with Wall Street and what's happening in the financial markets. As your president, my job is to regulate what happens in the financial markets to make sure that people aren't taking these kinds of risks and that we're having full disclosure." Now, I have a question. How in the world is the Democrat Party about to have this degree of an uneducated man run for president of the United States? How in the world do you graduate from the best university in the world and not know more than this about the Great Depression?

For a presidential candidate to assess the current US economy, as showing similarities to the Great Depression and what happened in the late twenties and the early thirties, is mind-blowing. I do not know how you come out of Harvard not knowing anything more than this about the Great Depression. And then, he said the US housing crisis resulted from a lack of regulation and mortgage lenders, investment banks who ended up with worthless assets. Do you know what we're learning about this subprime business? We are learning that quite a few of these people who are abandoning their homes never lived in them, they were speculators, got caught in a flip. All this talk about people walking away, there's a term now, walk-away mortgages, people walking away because ostensibly they can't afford them. They're walking away because they know they're going to be made whole. They're walking away because they don't have to pay for them. They never lived in these houses, they were flipping them, they were speculating.

But back to the Great Depression. Okay, "Obama Compares Housing Crisis to Great Depression," that is the headline for Reuters. "Obama Compares Housing Crisis to Great Depression." I'm wondering how many of you know what caused the Great Depression and what ended it, and after it started, what it was that exacerbated it. Now, I was trying to figure out last night -- you gotta remember here, I am steaming when I left here yesterday, you can ask Snerdley, I walked outta here, you know, we go out, get in the cars, usually tell each other, "Good show." I didn't say a word. I got in the car and sped off. Snerdley stayed here to play with the new computer. I got home, I was stewing. I take it very poorly when I do what I think is a subpar broadcast, and yesterday was, in terms of mood. Content may have been okay, but anybody can show up on the radio and be mad. That doesn't take much. My mood is better today. Can't you tell? Of course my mood is better today. So I got to thinking, what in the world could Barack Obama have been taught about the Great Depression if he compares today's economy and the housing crisis to it?

So I went and did some Google searching. I just entered "Great Depression," and I came up with some fascinating stuff. I shouldn't be surprised. Here in one of the first stories I found, the second page of six, "At least in part the Great Depression was caused by underlying weaknesses and imbalances within the US economy that had been obscured by the boom psychology and speculative euphoria of the 1920s. The depression exposed those weaknesses, as it did the inability of the nation's political and financial institutions to cope with the vicious downward economic cycle that had set in by 1930. Prior to the Great Depression, governments traditionally took little or no action in times of business downturn, relying instead on impersonal market forces to achieve the necessary economic correction. But market forces proved unable to achieve the desired recovery in the early years of the Great Depression." Does anybody know what is wrong with that claim? I don't know who wrote this. It's got a website, I don't know who it is, doesn't matter, it's not bylined. It's hard to pinpoint one thing. But when reading this sentence, "market forces alone proved unable to achieve the desired recovery, and this painful discovery eventually inspired some fundamental change in the US economic nature. Government action, after the Depression, whether in the form of taxation, industrial regulation, public works, social insurance, played a principal role in ensuring economic stability."

Now, what's wrong with this? You think about it. There's another one. Paul Alexander Gusmorino, May 13th, 1996, "'Main Causes of the Great Depression' -- A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929, the average output per worker increased 32% in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8%." Basically he says, "the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the US and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes."

So in two instances, Google searches, we find out of the that the gap between the rich and the poor was the cause of the Great Depression and that only government intervention stopped it. None of that is true, but I'll lay you ten-to-one that's exactly what Barack Obama was taught at every level of his education.

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RUSH: Now, I want to spend a little bit more time on this Great Depression business and Obama in Missouri yesterday comparing the housing crisis to the Great Depression. Ladies and gentlemen, that's shockingly ignorant. I don't know whether he actually believes it. I think he does because I think that's what he was taught. I don't know if he believes it or if he's just pandering. But at the same time I want to just check your knowledge of history. As you know, I am a famous college dropout, it was just a question on Jeopardy on this very day. And there are many days that I give thanks I didn't end up in college and have my mind polluted and brainwashed by a bunch of Marxist professors teaching me about how rotten my country is, which is what I think happened to Obama. This piece that I found searching on the Great Depression by Paul Alexander Gusmorino III, written May 13th, 1996, let me give you some more excerpts of this.

"The main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. ... This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize." He continues in the next two paragraphs to focus on the primary cause of the Great Depression, being the gap between the rich and the poor. He then writes, "The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge's administration (and the conservative-controlled government)--" Mr. Gusmorino, there was no conservatism during Calvin Coolidge's administration.

"The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge's administration (and the conservative-controlled government) favored business, and as a result the wealthy who invested in these businesses. An example of legislation to this purpose is the Revenue Act of 1926, signed by President Coolidge on February 26, 1926, which reduced federal income and inheritance taxes dramatically. Andrew Mellon, Coolidge's Secretary of the Treasury, was the main force behind these and other tax cuts throughout the 1920's. In effect, he was able to lower federal taxes such that a man with a million-dollar annual income had his federal taxes reduced from $600,000 to $200,000. Even the Supreme Court played a role in expanding the gap between the socioeconomic classes."

So what we're getting here, written in May of 1996, is a rehash of liberalism to Marxism today. This guy, Paul Alexander Gusmorino, has a little disclaimer here at the top: "NOTE: Don't plagiarize: it isn't fair to me, your colleagues, or yourself." Mr. Gusmorino, you better check Karl Marx and see if you plagiarized him in putting this piece together. It's almost word-for-word what communists taught their kids about American capitalism. No wonder these people like Obama can't get it, that America is a great nation. They have no clue what made us great or an economic superpower. All they've been taught is any American downturn is because of the rich and the poor and it's leading to a Great Depression. "The large and growing disparity of wealth between the well-to-do and the middle-income citizens made the US economy unstable. For an economy to function properly, total demand must equal total supply." (laughing) Did you read this? Did you hear this? "For an economy to function properly, total demand must equal total supply." Zero-sum game. It's exactly what liberals think. You get a dollar raise; somebody loses a dollar. You get a job; somebody gets fired. Zero-sum game. They've always thought this. No growth, it doesn't happen.

"In an economy with such disparate distribution of income it is not assured that demand will always equal supply. Essentially what happened in the 1920's was that there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whose needs were not satiated could not afford more." Now, how many of you know what the cause of the Great Depression was? The stock market crash was not it. The Great Depression -- I mean it was bad, don't misunderstand -- I just don't think Obama knows what it was. I don't think he knows what caused it. The Great Depression caused a worldwide economic downturn because even at that point the United States, even in 1928, '29 -- remember the Roaring Twenties? Have you heard of the Roaring Twenties? Do you know what the Roaring Twenties were? I mean, it was exciting. The Great Depression -- and Milton Friedman has said this -- the Great Depression was not caused by the stock market crash in 1929. It was a normal downward cycle. We had a stock market, the bottom fell out.

I asked you ten minutes ago if you know what the single most exacerbating cause of prolonging the Depression was. That would be the Smoot-Hawley Tariff act, which was protectionism. The initial government response to the crisis exacerbated the Great Depression. This Paul Alexander Gusmorino III is exactly wrong. What prolonged a stock market problem was the government getting involved. And their first response was Smoot-Hawley, which was protectionist policies, tariffs on anything that we imported. Rather than help the economy, it strangled global trade, and this led to the rest of the world suffering an economic downturn. Businesses that suffered the most during all this, because of this, were agricultural, mining, and logging. The New Deal was supposed to get us out of this. The New Deal was supposed to get an active government involved in solving the Depression. It exacerbated it! What got us out of the Great Depression was World War II. Seventeen percent of the American male population ended up being drafted. That took care of a lot of unemployment. Not all of it.

Rosie the Riveter, women went to work in the factories building airplanes and so forth. It was gearing up to beat the Japanese and the Germans. And, by the way, you might even be able to make a claim, although this is arguable, but you might be able to make a claim that the Great Depression and its exacerbation, Smoot-Hawley and tariffs, might have led in part to the Japanese saying, to hell with America. It's arguable. But the whole world was thrown into a downward cycle. Not just because of Smoot-Hawley, but the point is we're nowhere near anything like that today. We are nowhere near anything, and we've got the Democrat presidential presumptive nominee in southeast Missouri claiming the housing market reminds him of the Great Depression. The Japanese needed oil, they needed oil for growth, we had all these tariffs going on, they invaded China for the same reason. And yet what is being taught to these skulls full of mush in even the best universities?

Marxism. "The disparity between the middle class and the rich led to the Great Depression." Well, a little common sense. If that were the case, wouldn't we be in one right now? And wouldn't we have been in one since basically our founding? And wouldn't Great Britain be in a great depression? You think it's bad here. They've got royalty. They have an aristocracy that sits around on Saturdays sipping gin at four in the afternoon after getting up at noon. Talk about work output, zilch, zero, nada. Look at Russia. Look at anywhere. There ought to be great depressions all over the place. I am convinced -- I'm not convinced, but I wouldn't be surprised -- Obama goes to one of the greatest universities in the world and comes out not knowing diddly-squat about the country that the Democratic Party says he is the best they have to lead it.

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RUSH: Nathan in Washington, nice to have you, sir. Thank you for waiting. Hello.

CALLER: Speaking of the Great Depression, I am depressed. It's almost as if McCain just wiped out all of the help that was bestowed upon him as a result of the entire Operation Chaos mission with his environmental speech. Mr. Limbaugh, please don't downplay the monstrous negative effect of our media that it's having on everything that we cherish. We Dittoheads have placed our faith in you to not allow this media to destroy our country. We want you to use your power to stop them. We don't want to hear about liberals or liberalism or Democrats, all of which would not exist if we force our media to report truth, Rush. Please use the power that only you have, Mr. Limbaugh.

RUSH: Yes. And I appreciate that. And you're right, that power I do possess. However, that power, the power to rid the media of liberalism does not exist. I have warned you countless times in this audience, if you are going to sit out and define happiness and/or success based on how much of liberalism is trashed and gotten rid of in the mainstream media, you're going to forever be disappointed. They own it. They will for always and ever be liberal. The idea is to get to the hearts and minds of as many Americans so as to render the Drive-By Media less potent. This has happened, it will continue to happen. Look at their newspaper circulation: down. Look at their advertising revenue: down. Look at the number of layoffs at big papers: up. Look at ratings for cable TV networks that are on the left. You need a magnifying glass to see 'em. Look at the declining numbers of the evening news. The difference is they are 24/7. They pound and pound and pound and pound. But we've shown over recent years they can be beaten, they can be beaten back. That's what's so frustrating right now, if you ask me. We will continue to endeavor into our objectives here and will be undeterred. Of that, have faith and be confident.

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RUSH: I have one more thing about tax rates and who was paying what in this country leading into the Great Depression when we come back, and it's eerily similar today, but not the way you think. Not quite, but getting there.

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RUSH: I'm checking the e-mail and I got an e-mail from a guy, "Rush, I checked out what you're reading about the Great Depression. You're reading something written by a high school student." I'm reading from three different entries on the Great Depression. But even if one of them is from a high school student in 1996, where did he learn what he's learning? What is the point? I mean, that is precisely the point. There are a lot of things that I don't think we're being taught about the Great Depression. One of the things that led to the stock market problem, Joe Kennedy, the patriarch of the Kennedy family, these guys, he and his cronies were gaming the system like you can't believe. They were out there selling short, which means they're betting on stock prices to go low, manipulating things so that they did. People were losing their shirts. You know, bootlegging booze into the country. The Kennedy family to this day still gets the duty on scotch imports into this country. It's not a complicated thing. But you know what's happening here with all of American history, when you and I were in high school, junior high, learning American history, American history was American history. Today, it's not. American history is liberalism. It's taught from a political science agenda standpoint.

Rockefellers were playing fast and loose with things, too. And, by the way, during the Great Depression, there was all kinds of economic growth. You can go look at charts and graphs of this, but you can find that Southern California, people were migrating to where there were jobs, Southern California, all of Northern California, building Golden Gate Bridge, building the Bay Bridge in the Great Depression, Hoover Dam, Empire State Building, they came in, in four years, and in the case of the Empire State Building, came in on time, or early, actually. Now, one more thing. One of the comments in one of the pieces I read about the Great Depression -- and this all started because Obama in Missouri yesterday claims that the housing crisis today reminds him of the Great Depression, which is just flummery. It's dangerously uninformed. Here's a guy who went to the most expensive, said to be the greatest university in the world, he's just ignorant about things. I'm convinced he's been taught all of his life a left-wing political agenda under the guise of American history. To think that this guy might end up in charge of the entire executive branch, the Treasury Department -- think Jimmy Carter.

From 1976 to 1980, this country was in the toilet. It was in the tank. And there are definite reasons for it. I think people have forgotten or maybe they never knew in the first place. One of the things in one of these pieces about the Great Depression, the unequal distribution of wealth, the great difference between the rich and the middle class and so forth. And then this guy goes on to blame tax cuts for the rich for leading to the Great Depression. The US Department of Treasury, statistics of income, annual 1920 to 1929. Tax rates in this chart are shown for taxpayers at $100,000 a year. And before 1925, the top rate was even higher than it was. Here's the bottom line. In 1923, the rich paid 32% of all taxes. In 1925, the rich paid 45% of all taxes. In 1929, the year of the stock market crash, the rich paid 65% of all income taxes. That's why I say there's a close similarity to today, but it doesn't mean we're heading into a depression. That's not what this means at all. Now, a hundred thousand dollars back in the twenties is equivalent to a little bit over $1 million today in terms of income.